Friday, August 12, 2011

“Right to Repair” – There’s an Awful Lot Not Right About It - David Carlisle

OK, I will move on after this blog. It is difficult to be a Massachusetts liberal living among like-minded do-gooders who love to mint laws protecting civil liberties and promulgate social got-to-haves. Trillions of dollars in debt and we still churn out new laws that compromise liberal, civil, and social interests with conservative pork barrels. Right to Repair is a simply wonderful example of this.

Massachusetts is becoming another battleground on this issue – I hope that the Old North Bridge is strong enough to handle the load, again. What’s “right to repair” all about? It’s about a bill making its way through the Massachusetts legislature “allowing independent auto mechanics access to the same repair information available to dealership mechanics.” (Boston.com 7/6/2010 Mass. Senate approves Right to Repair Act) If you do a Google search on this topic you get a lot of hits and very few points of view. Let me simplify it all for you.

A lot of companies that produce non-dealer auto parts are supporting a non-profit industry group, AAIA (Automotive Aftermarket Industry Association) in their multi-million dollar lobbying efforts to push this legislation through to set legal precedence so that they can sell more parts and make more money. They chose Massachusetts as a battleground state because we voted for McGovern, feel strongly about civil liberties, and, heck, ain’t fixing your car where you want a civil liberty? So, because we are a bunch of Democrats, a bunch of Republican businesspersons are playing us as a bunch of dupes.

Let’s look at the Massachusetts Right to Repair Coalition and examine the facts that they are making their case with.

They (look at the names on the coalition – mostly a bunch of parts companies) want a level playing field that requires the manufacturers to provide to independents the same repair and diagnostics information that they provide to their dealers … at a fair price. This is a non-issue because this information has been available since 2002. There are lots of sources for this information – the big one is the National Automotive Service Task Force (NASTF at NASTF.org). NASTF says that the information currently available covers 99.8% of all repairs. Consumer Reports independently says that lack of access to data represents about .2% of all repairs, and that may be overstated. The missing .2% might be a function of language skills, education, training, IQ, and lack of basic technology. So, this issue is all about 2 repairs in a thousand. Have you ever had what they call an “intermittent failure?” These are service problems that are nearly impossible to diagnose because they come and go. It might just be that the 2 in 1,000 statistic is incredibly overstated, and irrelevant. How often do automotive service technicians experience intermittent failures and do not have enough information to complete the repair? This “demand” is like stating, “when did you stop beating your wife, for a fair price?” The false accusation and negative inference is the intent.

They want to ensure consumers’ choice of where to get their car fixed. We all have that choice today – just read the signs in the waiting rooms of Joe’s Sunoco, Jiffy Lube, Firestone, Midas, and any other independent mechanic. So, there’s nothing here either.

They want to save consumers $300 - $500 per family annually. How? We see numbers like this all the time but with no substantiation. We recently documented a mystery shop at Jiffy Lube – a non-dealer independent service outlet – and determined that you could save more than $150 a year by going to a dealer. Now, this is really simple stuff – changing your oil. Where’s the proof on the tougher stuff? Nothing’s here.

They want to protect Massachusetts drivers and their families by requiring all safety bulletins and recall information be distributed to all repairers, not just independent repair shops. Done! This information is all over the internet, sometimes, in the most unexpected places. If you have a few minutes to go to Google and type in “technical service bulletin” you will find “Clever Dude” which describes how to get all the TSBs you could ever want. To get everything, all the gory details, it’s going to cost you $24.95 for each vehicle; or, you can get a summary for free from Edmunds. Again, there’s nothing in this Coalition’s demand that is not already done and documented as history.

Finally, the coalition wants to protect 32,000 jobs in Massachusetts related to the independent automobile industry, including more than 5,700 repair shops.It’s not like all those jobs and service shops are going to China. The reality is that the OEMs have been steadily losing market share over the years. 75% of all non-warranty repairs are already done by the independent shops. The work will stay in Massachusetts and the shops will continue to benefit from increasing independent aftermarket market share. This last coalition worry-wart is just plain stupid. Not really. The lobbyists are really being paid to shift more sales, profits, and jobs away from dealers to non-dealer service outlets.

Never assume that someone spending millions of dollars lobbying something is truly stupid. If none of their facts line up very well, then something must be missing. That’s why I read the Massachusetts House Bill 102.

The bill stipulates that the OEMs make available to the independent motor vehicle repair facilities pretty much everything involved in product support at the same cost and terms that they charge authorized dealers. And they want it in the same form and same manner that all this stuff is provided to dealers. This includes diagnosis, service, training, repair information, and tools. If they don’t do this and the law passes, the independents can sue based on unfair and deceptive trade practices.

This reflects the brilliance of the lobbyists who wrote this bill. They found an elegant trap - voters want to hear about how they can save money & jobs, and protect their civil rights. Voters do not want to pay attention long enough to understand and appreciate complexities. And, here, the complexities are profound. Embedded in the Right to Repair bills are three things – “hidden agendas” – that the “coalition” really wants:

“Same Cost” - The independent repair shops want it at the same cost dealers get it for.

“Big Stick” - The lawyers want an enormous litigation club where anybody can launch an “unfair and deceptive trade practice” lawsuit.

Spreading the wealth of information at the same cost that dealers get might sound reasonable on the surface. But, it is not. In the area of long-term customer support, OEMs generally treat service and engineering as cost centers, and parts sales as a profit center. A lot of stuff that Bill 102 asks for is provided at no charge to dealers: diagnostic systems development, training curriculum development, tool design, hotline technical support, internet technical support, technical service bulletins … the list goes on. Some of this stuff is provided to dealers at minimal cost/profit levels – dealer service training, technician certification, dealer technical systems support, tools; again the list goes on. OEMs do this because it incentivizes dealers to invest in their own customer support and provide the highest possible level of service. This “stuff” costs millions of dollars annually, and the investment is internally seen as:

A way to differentiate brands in the market place – e.g., a Yugo vs. a Toyota. Yugo’s lack of customer support in the US market was one reason for its failure. Ultimately, customers benefit from Chevy’s higher standard of customer support.

A way to increase end-customer satisfaction, achieve higher brand recognition, higher brand loyalty, and sell more cars and trucks.

Just part of the cost structure that is offset by parts profits.

Codifying a bunch of vague claims and demands into a law, then giving lawyers an atomic-sized “unfair and deceptive trade practice” stick is going to cost millions of dollars in legal fees. With thousands of independent service stations in each state, it would be fairly easy to assemble class action lawsuits. One way or another, millions of dollars of excess cost will be incurred by the OEMs to defend their interpretations of a vague law and for protecting their competitive secrets. Who suffers? Vehicle and service customers who, ultimately, will have to pay for all those lawyer Gulfstream jets. We should name this law for what it really does: Lawyers’ Right to Fleece You More (LRFYM) Act.

If you compare a typical OEM to NAPA and most of those parts companies who are paying the Right to Repair lobbyists, the OEM provides a lot more services, and bears a lot more cost, due to the stuff that Bill 102 asks for “at the same cost and terms that they charge dealers.” It’s because OEM parts sales is a profit center and service and engineering are cost centers. The lobbyists know this, the lawmakers simply don’t care, and those liberal Massachusetts voters, like me, are all dupes.

Jay Forrester, the MIT inventor of System Dynamics, would love to build a system dynamics model of what would happen if this bill were to pass. Consumers would ultimately get slaughtered.

Disclosure of relevant IP would make it easier for off-shore companies to make cheap unregulated and untested safety-related parts that would be marketed – like what we all see today when we buy contaminated frozen shrimp from Vietnamese fish farms.

All the OEMs would have to start charging dealers fair and stand-alone prices for all the stuff that Bill 102 ask for – they’d have to do this because there is simply too much cost involved to give it away for free or at current costs and terms.

OEMs could reduce parts costs to do this, but, due to matrix pricing, consumers would never see this. The dealers would need to preserve current prices to preserve fixed operations profits.

Human nature would take over in this very cyclical, mature industry. These higher costs would cause many dealers not to buy the training, technician, certification, tools, hotline support, technical service bulletins, diagnostic support … the list goes on.

Because of the costs, the independents would not buy this stuff either.

With declining sales for all this “stuff”, OEMs would reduce their investments. And, both the content and quality of this “stuff” would decline over time.

It might take 5 years, but sheer economics and system dynamics would combine to give the US market a KO punch. We’d end up with a Yugo market.